2078
n
A rock or a soft place?
The third sin
There was of course a fourth management factor that contributed
heavily to the downfall. It’s the factor that is related to what was
on everyone’s lips in the immediate aftermath of each of the
aforementioned crises: greed. Somehow, all organizations and
individuals involved seemed to have let short-term nancial
gain prevail over common sense and good stewardship. But in
all these cases, avarice – or greed; the third Biblical sin – was
not restricted to the few top managers who ended up in jail
or covered in tar and feathers. Ahold’s shareholders initially
proted as much as its executives. Investors, politicians, and
even customers shared equally in the early windfalls of Enron,
likewise for the investment banks. Even the Church of England
made big bucks investing in the nancial practices they so
heavily criticized in the days following the collapse of the
system.
The greed factor, however, does not stand
alone; it is built into the structure of the
whole corporate system. Traders are incen-
tivized to concentrate on making money;
top managers are supposed to cater to
the nancial needs of shareholders above
anything else – opening themselves up to
severe criticism if they don’t – and customers
are expected to choose the best deal in town without having to
worry where and how the gains were created.
However, none of these parties actually see what lies behind the
nancial benets, or where they come from. The traders just see
the numbers, the investors only see their dividends and earnings
per share, and the Church of England simply chose the best
deal while the archbishops were unaware it amounted to short-
selling. The high degree of specialization and division of labor
both within and between the nancial institutions may have
revealed the result of the process, but showed no sign of how
these prots were produced.
‘‘
The greed factor
is built into the
structure of the
whole corporate
system.
’’
Business Exposed208
In combination, all these elements combine to create a system
that escalates risky short-term strategies until it culminates in an
irreversible course of action. Consequently, it becomes unseemly
to do anything else. As in a pyramid investment scheme,
everybody is interlocked and benets until the whole structure
collapses, sometimes with devastating consequences. The 2008
banking crisis is only unique in the sense that it did not concern
one organization but a whole global sector of interlocked rms,
due to the high degree of similarity between the various corpora-
tions and their business strategies, and the unprecedented extent
of the nancial linkages between them.
All these things point to one underlying cause: the structural
failure of management. The management systems used to govern
these organizations were unable to control the inevitable spiral
towards destruction. Whether analyzing Enron, Ahold, Union
Carbide in 1984, or banks in 2008, the striking commonality
is the sheer inevitability of the disaster; each of them were
accidents waiting to happen, given the state of the organization.
More rules and regulations, and more quantitative and nancial
controls, are unlikely to solve the problem and prevent similar
events from happening in the future. All organizations and
people involved in these cases, ranging from top managers
to traders and customers, were governed and incentivized by
means of quantitative and nancial controls. However, today’s
businesses are too complex to be controlled by rules and nancial
systems alone.
Instead, organizations need to tap into the fundamental human
inclination to belong to a community (such as an organization),
including people’s desire to do things for the benet of that
community rather than focus on their individual interests. These
are still alien concepts in the City and on Wall Street today,
where incentives are geared towards optimizing individual,
short-term performance while company loyalty and a sense of
community are all but destroyed by the nancial incentives and
culture in place. Yet, when such human desires to contribute to
a community are articially suppressed through narrow nancial
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.